Home prices cooling in Wisconsin cities

An estimated 38 percent of the nation's housing stock, mostly in coastal areas, remains "extremely overvalued" and at risk for decline, say analysts at National City Corp. and Global Insight Inc.

Although prices have dropped in much of the country, Phil Hopkins, a spokesman for the joint research effort, said that "there doesn't seem evidence anywhere in the country of rapidly falling prices."

The third-quarter market analysis of 299 metro markets showed 65 to be "extremely overvalued," a judgment reflecting house price to income ratios, population density, historic market patterns and interest rates. Naples, Fla., and Merced, Calif., led the overvalued list, at 84 percent and 76.7 percent overvalued, respectively.

Milwaukee and Madison were deemed 16 percent overvalued, down from 17.6 percent and 18.6 percent, respectively, at midyear. Other Wisconsin markets rating as overvalued--although also less so than compared with the second-quarter--include: Racine, 20 percent; Kenosha-Lake County, 14 percent; Green Bay, 8 percent; Janesville, 11 percent.

"There's a bit of a virtue being in Milwaukee," Hopkins said from his office in Eddystone, Pa. "Your prices haven't exploded. They're much more likely to level off than collapse."

"We've had these years of unrealistic conditions," said Tammy Maddente, executive vice president of First Weber Group, based in Wisconsin. "Now it's over. Homes are selling well. I'm on the North Shore, where we probably had our best November ever. But it's price sensitive."

It's high-price sensitive, said Dave Schmidt Jr., broker-owner of Dave Schmidt Realty in Milwaukee. "In spring, you could price a little fat into asking price," Schmidt said. "Now you can't." With new for-sale listings running 22 percent ahead of last year, Maddente said, "the market has no mercy" on greedy sellers.

Sales have slackened in Milwaukee's four-county region with 1,456 last month--203 fewer than October and nine fewer than November 2004, Metro Multiple Listing Service reported this week. "We're seeing a slowdown in buyer activity," said Dennis Doyle, vice president of Great Midwest Bank in Brookfield. "But remember, we're coming off a period of fantastic activity. Go back five years, and this level of business would have looked great."

This year is still on track to outperform 2004.

With one month yet to count, housing resale volume in Milwaukee, Waukesha, Washington and Ozaukee counties is at 19,068, which is about 7 percent ahead of last year's 17,824. Racine County recorded 245 existing-home sales in November, 16 percent more than a year ago.

"We're not seeing the month-to-month hikes we saw a year ago," said Bill Novak, sales associate at ERA Newport Realty Group in Racine. "But people are still coming from Milwaukee and Kenosha, thinking we're a better bargain."

What fate awaits areas with continuing climbing prices?

"That's the billion-dollar question," Hopkins said. "We could either see a slowdown in appreciation, a leveling off, or a decline. We'll need a few more quarters to be sure what's happening. One crucial factor is interest rates."

A sudden rise in interest rates could shut off market demand like a spigot, whereas slow change "will have a cushioning effect," Hopkins said. Hopkins is managing director of U.S. regional services for Global Insight, a Waltham, Mass., economic analysis firm that analyzes housing conditions as a joint venture with National City Corp., a Cleveland-based financial holding company.

Their report, at www.globalinsight.com, echoes recent warnings from other economists that the U.S. housing market has swelled to unsustainable proportions.

Last month, the University of California-Los Angeles Anderson forecast cited softer sales and prices as possible harbingers of a housing decline.